Turkey’s annual inflation rate jumped to a 24-year high of 73.5% in May, fuelled by the war in Ukraine, rising energy prices and a tumbling lira – though the figure was slightly lower than economists had feared.
Inflation has surged since last autumn, when the lira slumped after the central bank launched a 500 basis-point easing cycle sought by President Tayyip Erdogan.
The latest figure surpassed the 73.2% touched in 2002 and is the highest since October 1998, when annual inflation was 76.6% and Turkey was battling to end a decade of chronically high inflation. Nevertheless, the consensus forecast was for annual inflation to rise to 76.55%.
Month-on-month consumer prices rose 2.98%, the Turkish Statistical Institute said on Friday, compared to a Reuters poll forecast of 4.8%.
Transport and food costs have soared by 108% and 92% respectively over the last year, reflecting a deepening economic crisis for Turks struggling to afford basic goods.
The domestic producer price index climbed 8.76% month-on-month in May for an annual rise of 132.16%, reflecting how a 20% drop this year in the currency has sent import costs soaring.
The lira weakened 0.25% to 16.5050 against the dollar touching its weakest since December. The local currency tumbled 44% in 2021 and another 20% this year.
In April, the central bank forecast annual inflation would peak by June before declining to near 43% by year-end and single digits by end-2024.
The government has previously said inflation will fall to single digits next year under its new economic program – prioritizing low interest rates to boost production and exports – aimed a achieving a current account surplus.
However, data on Thursday showed the trade deficit widened 157% year-on-year in May to $10.7 billion.
Economists see inflation remaining high for the rest of 2022 due to the war, weakening lira and the central bank’s reluctance to raise rates. The median estimate for inflation at year-end stands at 63%, up from 52% in last month’s poll. [Reuters]